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(A new series of real-life experiences.)  THEY'LL GET YOU EVERY TIME - or I will ... Independent Contractor on the Warpath By Eva Rosenberg, MBA, EA Recently, Janine, one of my clients was fired from her job. The only problem was she couldn't collect unemployment. Although she was in need of hip surgery and couldn't work, she was also ineligible for State Disability. This seems awfully unreasonable. How could this happen? Pay attention, now. This could have happened to you - or is about to. Despite all the signs pointing to the fact that Janine was an employee, her Company hired her as an independent contractor. Many companies, including you, do this as a short-cut to save on the burdensome paperwork and costs of maintaining employees. It's much easier to hand a worker on full check, give them a 1099-MISC at the end of the year and wash your hands of the whole matter. Having to compute and take the correct amount of withholding, having to pay it to the IRS and the state governments, having to obtain and pay for workers compensation and other insurances, having to fill out aaaaalllll those forms all year - and then the W-2's at the end of the year. Wow! This is a massive amount of work - and responsibility. And if you're not good at meeting deadlines, you will find yourself in serious trouble. Janine's Tale But, my friends, the facts are .... well, let me just tell you Janine's story, OK? Her Company must have been quite wealthy. They hired Janine to be their Kitchen Manager. She had to plan and prepare breakfast and lunch for the Company's employees at three locations. She supervised (and even interviewed and wrote employee evaluations) her staff of two. Janine placed all the food and supplies orders, with the invoices being sent to the Company, in their name. In fact, when the company moved, she was the one who went out and spent tens of thousands of dollars buying new kitchen equipment, huge freezers, stoves, heating tables, etc. Heck, her Company even wanted her to wear their uniforms, like every other employee. The only difference was, they paid her as an independent contractor. Now, this happens to many of you who wish you could be on payroll, but the Company refuses. What's the big deal? The Big Deal Let's look at how this affects Janine. All right, if she had been an employee, she would have been paid for about a dozen holidays, three (yes, count them, three!) weeks of vacation, two weeks of sick pay. Her medical insurance would have been covered. The Company was doing so well that they paid their employees bonuses, not once, but twice each year. The bonuses amounted to about 10% or more of the employees' earnings. Janine got none of that. When you figure out all the things that the Company stiffed her on during a 14 month period, it adds up to about $20,000.00. That's an enormous amount of money. Then, add the fact that Janine can't collect any unemployment or disability until she is able to return to work...This could completely push someone over the edge. No doubt, this has happened to you, as a worker, on more than one occasion. And you knew that you had agreed to the arrangement, so you were responsible for the consequences. But Janine had never agreed to this arrangement. When they hired her, they told her that she could decide if she wanted to be an employee or independent contractor. But they would start her off as a contractor since there were only two weeks left in the year. She called me as soon as she got hired and I told her, "Based on your duties, hours and the fact that you do not advance any money for their food, supplies or labor, you are, without question, an employee." And so here is the crux of the problem. During the entire time Janine worked for the Company, she persisted in asking them to change her status. They kept putting her off, until they finally fired her, when they started downsizing. She wasn't just doing a "sour grapes" number because she wasn't working there anymore. She had been trying to get this established from the beginning. We'll Just Have to Fix That! So, here's Janine, in her 60's, unemployed, ill and without a dime of income to pay the rent. I told her to file for State Disability. I assured her that when they investigate the circumstances, she would prevail. (This is how, you, as an employer, would get caught. A contractor you fire or let go will file a claim against you. The government will investigate - or audit.) She filed - the Company fought it. Well, we went to a hearing with the State Employment Development Department Judge. After Janine started answering his first few questions (like the one about the Company leaving it up to her to decide if she would be a contractor or an employee) the Judge interrupted her. He stated very firmly, "Listen, I don't care what the Company says you are. It's the law that I care about. And if the law says you are an employee, you will be treated that way." He was surprisingly vehement. I got the feeling that he faced this situation with employers trying to cheat their workers all too often. Ta Da!!!! We left. And within 48 hours, Janine had his decision in her hands. She was an employee. Oh, you think that's the end of this? Not by a long shot. Janine still has a mountain of paperwork to climb before she'll be able to collect her disability. But, she will get the money, retroactive to the day she filed for it. In the meantime, with this decision in hand, we'll be filing with the Labor Board to secure the other $20,000 worth of vacations, bonuses and benefits the Company denied her. We should have no problem winning. And who knows, if we investigate and learn that they didn't treat anyone else this way, there may even be a discrimination suit.
Conclusion: Doing it wrong will cost the Company far more than it would have cost if they'd followed the law in the first place. They'll have to pay all the back taxes, all the benefits, penalties,...and, they'll have to bear the costs of an employment audit. Those usually go back to either the start of the business, the last audit date, or three years, whichever is longer. If the government decides that other workers were handled wrongly, there will substantial additional taxes and penalties to pay. |
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